The first AGM of the newly formed DowDuPontCo will take place on 25th April 2018, after which the company is expected to break into three separate entities. On All Fools’ Day, the 1st April, incumbent Dow Chemical CEO, Andrew Liveris, steps down leaving his replacement, Jim Fitterling, to face three awkward Bhopal-related resolutions at the AGM.
AGENDA ITEM 7: STOCKHOLDER PROPOSAL — PREPARATION OF A REPORT ON SUSTAINABILITY METRICS IN PERFORMANCE-BASED PAY
WHEREAS: Numerous studies suggest that companies that integrate environmental, social, and governance (ESG) factors into business strategy reduce reputational, legal, and regulatory risks and improve long-term performance.
A large, diverse group of companies has integrated sustainability metrics into executive pay incentive plans, among them Unilever, Walmart, and Mead Johnson. Guidance issued by the United Nations Principles for Responsible Investment (2012) stated that including ESG factors in executive incentive schemes can help protect long-term shareholder value.
As a result of the DowDuPont merger, there are new opportunities from the perspective of long-term value creation to consider establishing a more transparent and consistent relationship between sustainability, company reputation and executive bonuses.
The company is certainly trying to improve its reputation, despite a lasting shadow cast by the 1984 Bhopal chemical disaster, the marketing of napalm in the Vietnam War, and the continued production and marketing of controversial pesticides such as chlorpyrifos.
In the Harvard Business Review, Dow Chemical CEO Andrew Liveris asserted that this is “no longer the company that gave you napalm during the Vietnam War.” He discussed how the company is trying to transform itself through environmental initiatives and a commitment to sustainability, for instance, substituting more environmentally friendly materials for petrochemicals:
And our new goals have us delivering two billion dollars of new value through 2025 by managing inputs for less outputs, by managing ourselves on emissions and on waste so we impact the environment less. These sorts of metrics, which we now track for ourselves, we can articulate to the investment community.
The denominator goals actually became the simplest to talk about to investors and to the financial community, which is look, there’s a license to operate, there’s a regulatory environment that comes through either federal or state or even local authorities, and those regulatory environments are born from inputs that are garnered from everywhere, and we need to be one of those that provide that input.
Although some executives within the company may have performance awards that include elements of sustainability, and sets performance goals for the CEO and Chairman, there is as yet no clearly articulated company policy that applies sustainability metrics to senior executive bonuses across the board.
RESOLVED: Shareholders request the Board Compensation Committee prepare a report to shareholders, at reasonable expense and excluding proprietary information, assessing the feasibility of integrating the company’s sustainability metrics consistently to performance based pay incentives for senior executive staff under the Company’s compensation incentive
plans. For the purposes of this proposal, “sustainability” is defined as how environmental and social considerations, and related financial, performance and reputation metrics, are integrated into long-term corporate strategy.
Supporting statement: Examples of potential metrics to integrate to senior executive compensation could include: reductions in the total volume of persistent bio-accumulative toxic substances sold by the company annually, number of new products introduced, objective metrics of company reputation among community stakeholders, effective resolution of legacy issues, and metrics regarding the company’s reputation for reducing its environmental and social impact.
AGENDA ITEM 8: STOCKHOLDER PROPOSAL — PREPARATION OF A REPORT ON INVESTMENT IN INDIA
WHEREAS: On December 2, 1984, a Union Carbide plant in Bhopal, India, released a gas cloud killing approximately 7,000 people within days and at least 15,000 more in the years following. Records show that the plant stored bulk quantities of ultra-hazardous methyl isocyanate but US parent company UCC did not equip the plant with some crucial safety features. In 1988, an Indian court upheld the liability of UCC to pay damages. Criminal charges were also brought against UCC for culpable homicide not amounting to murder.
Of 573,588 official victims, thousands were left with chronic illnesses. Recent research finds ongoing morbidity and mortality at ten times normal rates and also damage to survivors’ DNA, increasing the likelihood of suffering extending through future generations. Studies have found organic contaminants and heavy metals in soil at the former plant site and in local groundwater.
Bhopal exemplifies a failure of national and international law to ensure corporate liability and accountability for human and environmental harms. Responding to widespread public criticism, India reopened a civil claim in 2010, seeking additional compensation of over $1 billion. This year an Indian criminal court emailed Dow a ‘notice to appear’ in proceedings within which UCC is named an ‘absconder’. The Indian Law Ministry previously concluded that, “irrespective of the manner in which UCC has merged or has been acquired… if there is any legal liability, it would have to be borne by Dow…”
Dow Chemical CEO Andrew Liveris told McKinsey: “You’ve got to be agile, go to growth areas, and then stick with them.” India’s economy grows between 7-9% annually, with its chemical sector predicted to reach $403 billion by 2025, but Dow’s growth in India is being challenged. Bhopal-related issues were cited in the cancellation of a proposed joint venture with GACL, causing Dow losses and missed revenues totalling $300 million between 2008 and 2016.
DowDuPont’s growth in India can be reasonably expected to face serious, continuing obstacles while legal and moral liability for Bhopal remains unresolved. According to Motley Fool, “Dow’s refusal to take responsibility for Bhopal has hit the company’s bottom line…. and even limited its ability to invest overseas.”
RESOLVED: shareholders request that the Board of Directors prepare a report to shareholders by October 2018, at reasonable cost and excluding confidential or legally privileged information, providing objective, quantitative metrics and analysis regarding how the public’s association of the company with the Bhopal tragedy may be relevant to plans for investment in India until 2025.
Supporting Statement: Such report should, as a minimum, discuss any standing court orders or legal developments that create a risk to direct investment in India. The proponents believe that metrics should also include at a minimum, for Dow Chemical and DuPont, for at least the last five years:
- Quantified incidence of discussion of the unresolved Bhopal legacy in the course of an investment, expansion or licensing process;
- Relevant reputation metrics
AGENDA ITEM 9: STOCKHOLDER PROPOSAL — MODIFICATION OF THRESHOLD FOR CALLING SPECIAL STOCKHOLDER MEETINGS
RESOLVED: Shareowners request that the Board of DowDuPont Inc. (“Company”) take the steps necessary to amend Company bylaws and appropriate governing documents to give holders of 10% of outstanding common stock the power to call a special shareowners meeting. To the fullest extent permitted by law, such bylaw text in regard to calling a special meeting shall not contain exceptions or excluding conditions that apply only to shareowners but not to management or the Board.
SUPPORTING STATEMENT: Under DowDuPont’s certificate of incorporation, a special shareholder meeting can only be called by 25% of shareowners. This impossibly high threshold – which could require $39.4 billion in stock – is unreasonable and out of line with Company peers.
This Proposal would grant 10% of shareowners the ability to convene a meeting to consider important matters. The Proposal does not alter the Board’s power to call special meetings; rather, it grants share owners the reasonable right to call for consideration of important matters that may arise – and have arisen – between normally-scheduled annual meetings.
It appears that management has mishandled a variety of issues in ways that have increased both cost and liability for share owners – sometimes significantly.
When Dow Chemical acquired Union Carbide in 2001, it acquired significant legal, financial, and reputational liabilities that stemmed from the 1984 Bhopal gas disaster, and other pollution of the lands and water of communities around the former Union Carbide Bhopal plant.
For over twenty-five years Union Carbide has been declared an “absconder” from Indian criminal proceedings – making itself subject to an Asset Attachment Order designed to compel a court appearance. Parent company Dow acquired this escalating legal risk from the same case, having just this year received formal notice to appear from the same Indian court. Dow now confronts the prospect of becoming subject to a national Asset Attachment Order.
Following intense public pressure, India filed a Supreme Court petition to reopen civil litigation that seeks compensation of over $1 billion. A number of parties have filed briefs in the case to request a Mareva Order – which would freeze assets of the Company. This is the equivalent to having a senior-level claim or lien on the Company, which would allow seizure of DowDuPont assets worldwide.
India’s economy has grown between 7-9% annually and its chemical sector is expected to reach $403 billion by 2025. This emerging legal threat to the Company’s Indian assets may block or diminish participation in this growth, a risk that would significantly deprive share owners.
However, despite having a legal duty to do so, DowDuPont has failed to disclose these risks in public filings or statements to share owners. It has instead issued inadequate or misleading reports – a possible dereliction of Directors’ fiduciary duty.
For these reasons, shareowners need a reasonable 10% threshold to call a special meeting.
THEREFORE: Please vote FOR this common-sense governance enhancement that offers share owners a critical right which DowDuPont’s 25% threshold places out of reach.
DowDuPont Proxy Statement, Notice of Annual Meeting of Stockholders